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Question;Evaluating a;Mortgage Loan for the Dunns;Michelle and Ken Dunn, both in their mid-20s;have been married for 4 years and have two preschool-age children. Ken has an;accounting degree and is employed as a cost accountant at an annual salary of;\$62,000. They?re now renting a duplex but wish to buy a home in the suburbs of;their rapidly developing city. They?ve decided they can afford a \$215,000 house;and hope to find one with the features they desire in a good neighborhood.;The insurance costs on such a home are;expected to be \$800 per year, taxes are expected to be \$2,500 per year, and;annual utility bills are estimated at \$1,440?an increase of \$500 over those;they pay in the duplex. The Dunns are considering financing their home with a;fixed-rate, 30-year, 6% mortgage. The lender charges 2 points on mortgages with;20% down and 3 points if less than 20% is put down (the commercial bank the;Dunns will deal with requires a minimum of 10% down). Other closing costs are;estimated at 5% of the home?s purchase price. Because of their excellent credit;record, the bank will probably be willing to let the Dunns? monthly mortgage;payments (principal and interest portions) equal as much as 28% of their;monthly gross income. Since getting married, the Dunns have been saving for the;purchase of a home and now have \$44,000 in their savings account.;Critical Thinking Questions;1. How much would the Dunns have to put down if;the lender required a minimum 20% down payment? Could they afford it?;2. Given that the Dunns want to put only \$25,000;down, how much would closing costs be? Considering only principal and interest;how much would their monthly mortgage payments be? Would they qualify for a;loan using a 28% affordability ratio?;3. Using a \$25,000 down payment on a \$215,000;home, what would the Dunns loan-to-value ratio be? Calculate the monthly;mortgage payments on a PITI basis.;4. What recommendations would you make to the;Dunns? Explain.

Paper#51077 | Written in 18-Jul-2015

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